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GST: Finance Ministry Proposes 3-Year Compensation for States
December, 03rd 2014

The Finance Ministry has proposed to compensate states for three years for losses they may incur on account of switching to a nationwide Goods and Services Tax(GST) regime, as against a demand for a five-year compensation.

"We have tentatively finalised the GST Draft Amendment Bill and have sent it for legislative vetting. The ministry has offered a compensation for 3 years to states for losses incurred on account of switching to the proposed indirect tax regime," Additional Revenue Secretary Rashmi Verma said at an event here.

The states have demanded that such compensations be provided by the Centre for a period of five years under the GST regime, for which the government wants to introduce a Bill in the current session of Parliament.

The GST rollout has missed several deadlines because of lack of consensus among states over certain crucial issues on the new tax regime, which the present government wants to roll out from April 1, 2016.

Ms Verma further said that Union Finance Minister Arun Jaitley will meet State Finance Ministers on December 11 to build consensus on issues related to inclusion of petroleum products, entry tax and compensation funds.

On Monday, Mr Jaitley had expressed hope that the much-awaited GST Bill would be introduced in the current session of Parliament.

"We will try and introduce GST Bill in this session...GST Bill would be taken up by the Cabinet after Empowered Committee (of state finance Minister) meeting on December 12," he had said.

GST will subsume indirect taxes like excise duty and service tax at the central level and VAT on the states front, besides local levies.

There are differences between the central and state governments on some issues with regard to the implementation of GST that includes the revenue neutral rate and keeping petroleum, liquor out of the ambit.

While a sub-committee on GST has suggested that the revenue neutral rate of GST be pegged at about 27 per cent, the states are yet to decide on it.

It had suggested states GST at 13.91 per cent and Central GST at 12.77 per cent.

Besides, states have been demanding that petroleum, alcohol and tobacco should be kept out of the purview of GST.

The GST Constitutional Amendment Bill, which was introduced in the Lok Sabha in 2011, had lapsed and the NDA government will be required to come up with a fresh Bill.

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